John Waggoner: Which time is the right time to sell your stocks?

John Waggoner

If you read financial theory, you'll get the impression that the only time to sell stocks is when you have to defend the world against an invasion of Venusian Brain Garglers. And that is, of course, a very good reason to sell stocks.

But there are other good reasons to sell stocks, many of which do not involve Venus or the gargling of brains. Here are four:

It's a big, fat disappointment. Let's say you bought Hewlett-Packard after reading about its announced restructuring back in May. The company had announced plans to increase productivity and save $3 billion or so over several years and reinvest that money in the company. Granted, companies that plan to lay off 27,000 workers - 8 percent of the workforce - probably aren't in growth mode, but you liked the cost-savings and reinvestment part. You bought 100 shares on May 29 for $22.80 a share, or $2,280.

Looking at the stock today, you might feel a big chagrined. It's selling for about $11.90, and you're down 48 percent.

The mathematics of losses is ugly. To get back to $22.80, HP will have to gain more than 90 percent. This may happen over time, but it's likely to be a long time.

You've made enough money. Stop laughing. Suppose your goal for retirement is $1 million, which you achieved by a lifetime of saving as well as a mix of stocks, bonds and money market funds. You have your $1 million: Do you need to have 60 percent of your assets in stocks?

Probably not. You can gear back your stock holdings and set your goal to beating inflation, rather than growth. The idea in investing is to meet your goals with minimum risk - and if you can do that with a smaller portion of your money in stocks, then do so.

You're planning to sell anyway. Typical tax advice is to delay taking gains into the next tax year: Why pay taxes sooner than you have to? But this year could be different.

No matter what Congress does about the budget cuts and tax increases due to take place on Jan. 1, you will pay higher long-term capital gains rates in 2013 than 2012, thanks to the Affordable Care Act.

If Congress lets the Bush-era tax cuts lapse, the maximum long-term gains rate will rise to 23.8 percent - an even stronger argument for selling before Dec. 31, not after.

Bear in mind that this only applies to stocks or funds you were considering selling anyway. If you think your stock or fund will gain 7 percent a year for the next five years, then your brain has probably already been gargled. Your gains over coming years will far outweigh your tax burden.

You need to balance out a big gain. Losing money stinks. But you can use your losses to reduce your taxes elsewhere. When you sell a stock at a loss, you can use it to offset gains elsewhere in your portfolio. If your losses exceed your gains, you can deduct $3,000 of those losses from your income and carry forward remaining losses to the 2013 tax year.

If you sell losing stocks to reduce your gains, you can reinvest in those stocks after 30 days. Doing so sooner will result in a wash sale, and the IRS will disallow your capital loss. Even if you think a losing stock has potential, spending 30 days on the sidelines probably won't erase your gains over time.

Bear in mind that taxes are always a secondary consideration, not a primary one.

John Waggoner covers mutual funds and investing for USA Today. His column appears Mondays in the Reno Gazette-Journal.

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John Waggoner: Which time is the right time to sell your stocks?

If you read financial theory, you'll get the impression that the only time to sell stocks is when you have to defend the world against an invasion of Venusian Brain Garglers. And that is, of course,

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